Lucrative Leasing Segment Sows Seeds for GrowthMon, 09/01/2014 - 12:36
The trucking segment has been growing steadily in Mexico, and the owner of the largest fleet in Latin America is reaping the rewards, with over 10,000 trailers in operation nationwide. TIP México started leasing trailers in 1994 to major corporations including Walmart, Kimberly-Clark, and Frito-Lay. The trailer business was so successful that TIP branched out to lease a wide range of vehicles from compact cars to tractors. When the company was acquired by HNA in 2011, the decision was made to drive growth by expanding into vehicle leasing. This proved to be a wise move since, following the implementation of this strategy in 2012, the company has grown in size by 35%. TIP has steadily expanded its coverage beyond Mexico City to Monterrey, Guadalajara, Leon, Puebla, and Veracruz, with new offices being opened in Yucatan in 2014, driven by growing demand from the tourism segment.
TIP’s Director General, Juan Pablo Loperena, explains that the company took the decision to differentiate itself from other major fleet owners by offering both short-term and long-term leasing. “A customer can lease a trailer from one day to seven years, and we provide maintenance and insurance services throughout these time periods,” says Loperena. The company’s customer base used to be solely composed of carriers and private fleet owners, but today it is also targeting medium-sized companies with revenues of between US$375,000 and US$75 million, bringing their target customer base to a heady 75,000. Market figures support TIP’s faith in the leasing industry, showing this segment to be far more lucrative than the pure sales market. “Unfortunately, there are no official figures for trailers, but we have done our own research and established that around 8,000 trailers, both dry vans and reefers, are imported to Mexico every year, and around 1,000 more are made in the country,” explains Loperena. “For light vehicles, the potential is much larger. Of 1.1 million units sold inside Mexico in 2013, 50% were sold with a financial solution such as credit or leasing.” Of the 550,000 units that were financed in some way, around half were financed through pure leasing or sale and lease back options. TIP has estimated that 250,000 units are purchased through a leasing solution in Mexico every year, which comprises the market that the company is aiming to capture.
To provide customers with the right range of vehicle options, TIP maintains close relationships with its OEM providers. As a lessor, TIP must be able to provide immediate quotations and be able to handle any customization requirements the customer might have. “If a company works in distribution, we might suggest a certain model due to fuel consumption or cost of operation. For commercial vehicles, Japanese cars are one step beyond their competition as their total cost of ownership is lower than for other brands,” explains Loperena. For this reason, TIP’s relationship with OEMs must extend well beyond the initial fleet purchase, while communication lines are maintained open at all times with both OEMs and their dealerships.
Despite the potential market for leasing, a lack of financing is still considerably dampening the market. “70% or more of vehicles are financed in the US and most of that financing comes through leasing. In the US, you can walk into a dealership and walk out with a car after having only paid US$500,” comments Loperena. Despite the harder conditions for leasing in the Mexican market, TIP believes leasing can act as a major growth avenue for companies expanding into Mexico. “It is not easy for a company with 100 employees and US$10 million in revenue that suddenly becomes a Walmart supplier to invest in 15 tractors, 35 trailers, and 70 operators. However, such companies can grow through leasing solutions.” Leasing also offers greater financial protection to the lessor than normal financing options. Loperena explains that recovery times for leased cars are much shorter. “Typically, a bank will take 30 months to repossess a car, by which time the car has devalued considerably. We are very careful about who we give credit and lease to. But for most leasing companies like us, collection is straightforward and delinquency rates are very low, below 1%.”
Both of TIP’s trailer and automotive leasing businesses grew 50% in 2013, up 15% from 2012, and in terms of new leases, the company expects the automotive segment to become as large as the trailer segment in 2014. By 2016, TIP aims to be one of the top five leasing companies for cars in Mexico. For now, as Loperena explains, the market is heavily dominated by one player. “GE is a very large competitor, and the rest of the market is far below it. However, the market is big enough for all of us, although services will be the key differentiator.” TIP expects its growth to be compounded by the leasing industry, growing at a double-digit pace for the next four or five years. “As for trailers, customers have been replacing their old fleets in recent years, and this should continue through 2014 and beyond. Renewal is directly linked to national economic growth, as opposed to the car market. Many economic reports have pointed to the leasing industry being one of the sectors that will grow the most in Mexico in the years ahead,” says Loperena.